The report is one in a series on blockchain use cases produced by Deloitte Center for Financial Services.

Big four consultancy firm Deloitte has published a report examining how loyalty rewards programmes can be optimised by blockchain-based technology.

Customer loyalty programs are not realising their full potential due to low client retention and redemption rates, time delays, and high costs, according to the Deloitte Center for Financial Services.

The report finds rewards programmes consist of "fragmented and clunky systems that depend on centralised administration requiring the coordination of multiple parties through trusted intermediaries to move processes along the value chain."

Blockchain answers this problem by taking trust out of the process and decentralising it, states Deloitte. The report looks to reducing costs while benefiting the needs of different types and sizes of loyalty rewards programmes, all the while significantly improving customer experience by allowing customers to access most, if not all, of their loyalty rewards programmes in one digital wallet.

"We remind you that the most successful application of blockchain until now is Bitcoin, the digital cryptocurrency. In short, loyalty rewards are also a type of digital currency, so it is only natural that the engine that enables Bitcoin to be transacted among multiple parties in exchange for services, goods, and even other monetary tender could do the same for loyalty reward points," declared Deloitte.

The report, which is one in a series on blockchain from the Deloitte Center for Financial Services, breaks down into several beneficial areas.

1. Reducing costs

Although blockchain incurs upfront expenses, we believe that the trade-off cost savings will be identifiable on three major levels – system management, transactional, and customer acquisition. A blockchain-based loyalty rewards programme should reduce system management costs with smart contracts that report secure, tracked, transparent transactions to legacy systems, reducing costs associated with errors and fraud.

2. Enabling a frictionless system
An airline credits a customer's rewards in the same digital wallet from which he/she redeems them for the hotel. Through a trustless, decentralised technology solution, blockchain is centralising the customer's loyalty programmes. Loyalty providers decide how and with whom the customer uses these rewards, but from a consumer perspective, his/her ability to access and manage them is practically frictionless.

3. Making the process near real-time
Blockchain can enable a transaction to be recorded and accessed by multiple involved parties in near real-time, increasing the chance that a loyalty rewards programme provider can cut through coordination inertia to credit points faster.

4. Providing a secure environment
Blockchain creates an immutable and time-stamped distributed database entry of every single transaction ever made, making each transaction and its record easily traceable, but also rendering them irreversible, preventing double spending, fraud, abuse, and any other type of manipulation of the transactions.

5. Creating unique business opportunities
At the onset of building an interlinked loyalty network, large loyalty rewards programme providers with well-developed programmes will have unique opportunities to offer value-added services to other businesses.